Friday, August 09, 2013

Weekly Review - 12.08.2013

Dear All,

The rupee slumped to a new life time low of Rs 61.81 during the week on dollar demand from importers and weakness in equities. It may be recalled that the RBI had recently initiated measures to stem the fall in the rupee.

Speculative activities in the forex market should be curbed and short-term measures are needed to take corrective action to arrest the fall in the rupee, which hit an all-time low today, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said on Wednesday.

Raghuram Rajan, Chief Economic Advisor in the Ministry of Finance, who on Wednesday was appointed as the next RBI Governor, said: "The government will take some more measures to stabilise the rupee soon."

The rupee ended at Rs 60.88 to the dollar on Thursday.

Meanwhile, the central bank late Thursday decided to drain out more liquidity from the money market to make the carry cost of rupee expensive.

The central bank will auction Rs 22,000 of government cash management bills every Monday, it said in a statement, without specifying for how many weeks the sales would last. The duration of cash management bill sale will be announced one day before the auction, it said.

So what are the reason behind Rupee's fall :-

Worsening current account deficit:-

High Current Account Deficit (CAD) is the main reason that has continuously impeded all efforts of government in arrest the fall of rupee. India posted a record current account deficit of 4.8 percent of gross domestic product (GDP) in the year ending March. Government’s failure to explore new destinations has led to poor growth of exports. In the absence of a single window clearance system and process delays, exports have failed to register good growth. Even traditional export areas have failed to show resilience making Indian produce globally less competitive.

Insufficient FDI inflows :-

Despite all the decisions to allow major reforms in India, the government has failed to tap major FDI inflow in the country. Instead, India has witnessed withdrawal of major projects by global giants like ArcelorMittal and Posco. Posco pulled out of its Rs 30,000 crore steel plant project in Karnataka followed by ArcelorMittal that scrapped its $12 billion (Rs 50,000 crore) steel plant project which it was planning to set up in Odisha. Inordinate delays, land acquisition problems, government clearance delays, lack of promptness have all contributed to the withdrawal of major companies. Last year Indian companies spent more overseas than Foreign Investors in India.

FII outflows :-

Overseas investors have pulled out nearly Rs 18,500 crore (about USD 3 billion) from the Indian capital markets in July. In their highest monthly outflow, overseas investors pulled out a record Rs 44,162 crore (over USD 7.5 billion) in the month of June. Outflows of FIIs have put a continuous pressure on rupee not allowing it to come out of the slump. Meanwhile, leading global bank Goldman Sachs has downgraded Indian stocks to underweight and recommended investors to stay selective on concerns of economic growth recovery.

Rising Import bill:-

Rising import bill (arising out of gold) is also a major factor that has curtailed government’s effort to tackle the fall of rupee. Gold contributes to over 10 percent of the total import bill. Gold imports were 141 tonnes in April and rose to 162 tonnes in May. Due to certain government measures gold imports declined significantly in June but could not be held for the month of July.

Overall economic contraction :-

Poor economic growth in the manufacturing, agricultural and mining sector has dented investor sentiment and they have become wary of investing in India. Reflecting a persistent slowdown, industrial production in May contracted by 1.6 percent, lowest in the past 11 months. Last week RBI cut its growth forecast to 5.5 percent for the fiscal year, from 5.7 percent. Unless a better sentiment prevails, confidence in the rupee will stay shattered.

Strengthening of dollar overseas :-

In the last six months US dollar index strengthened by 3.52 percent. The strengthening of dollar is beyond government’s control which is ultimately hammering the Indian currency. Gradual recovery in US economy coupled with rising expectations that Federal Reserve will withdraw its stimulus package soon is underpinning the US dollar index.

Some good news to NRI because of Falling Rupee :-

While all this may spell doom for most, it is sweet music to the NRIs as a weakening rupee and dollar earnings is the best recipe to invest. It is certainly an opportune time to repay rupee debts (read education loans) but would it make sense to invest?

Real estate has already caught the fancy of many NRIs and with regulation in place, will make long term investments fruitful. Yet due to the liquidity issues, it may not be a preferred investment option for all. At the same time, banks are offering attractive rates for NRI deposits, which being tax free prove to be a good hedge for both inflation and to a certain extent the falling rupee.

So lets move on to Charts :-

>>> Nifty Weekly <<<

>>>Click the chart to see on full screen<<<

Nifty Weekly chart showing a strong signal from Bears. If breaks below 100wma & 200wma then free fall to continue.

>>> Nifty - Daily <<<

>>>Click the chart to see on full screen<<<

Though the support line broken nifty may give a possible relief rally or corrective upmove next week. Possible bounce back may last longer till the previous broken support line as shown on chart.

>>>Click the chart to see on full screen<<<

5486-87 acting as a support and hence it saved last week. But a deadly cross of 50dma and 200 dma gives a big warning from bear. Hence High Caution is advised.

>>> Nifty - Hourly <<<

>>>Click the chart to see on full screen<<<

Yes 5575 & 5620 act as a resistance. Till a meaningful upmove or break out on chart, remain with Sell on Rise Strategy.

>>> Bank Nifty - Weekly <<<

>>>Click the chart to see on full screen<<<

Weekly Chart of Bank Nifty gives a clear picture of where its moving towards. My view on Bank nifty to remain with a Target near 8000. Mean while an interim support may give a relief to Bank nifty which should once again be used for sell on rise.

>>> Infy <<<

>>>Click the chart to see on full screen<<<

INFY topped out. Unless breaks above 3030 or 3045 I expect a good correction. Probably it may fill the gap left as shown on chart. Cheers!!!

>>> Performance <<<

>>>Click the image to see on full screen <<<